The weekly newsletter for everyone interested in barter--the world's most versatile business tool!

August 20, 2002

Written by Bob Meyer, Editor of BarterNews

"The deceit, greed, and preposterous claims to wealth that characterize the managements of many large corporations today have little to do with the values of entrepreneurship as embodied in small and growing businesses."

--Carl Schramm, President & CEO of the Ewing Marion Kauffman Foundation, one of the top 25 foundations in the U.S. and the largest focused solely on entrepreneurial success at all levels.

Schramm, making the keynote address to the Young Entrepreneurs' Organization in Washington (DC) last Friday, says the scandals rocking executives at a handful of companies in the stratosphere of corporate American should not be confused with the work of the tens of thousands of "real entrepreneurs" who are crucial to the future economic growth in the
United States.

In underscoring the importance of the entrepreneur's role, Schramm said, "I believe that the entrepreneur may hold part of the solution to the current crisis. But, if we are not careful, the reaction of government--with its regulations aimed at the miscreants in big business--will make the burden on entrepreneurs much heavier, in that it's going to make the world in which we operate more difficult.

"Real entrepreneurs are not members of the pampered business elite," he said. "They must be close to their markets, to their engineering, to their production, to their distribution. They must face skeptical capital where it is presumed that new, small and untested companies will fail. They must judge the cost of capital in ways large companies, routinely having access to the easy money of bankers willing to suspend disbelief, cannot imagine."

Peoplesoft Affirms: No Barter Transactions

Such Announcements Give Public Wrong Impression of Barter

An August 14th press release by PeopleSoft reaffirmed that the company does not participate in barter deals.

CFO Kevin Parker exclaimed, "We do not participate in any material swap, barter or other form of offsetting transactions. In addition to these practices, requiring vendors, suppliers and business partners to purchase software as a condition of doing business can also inflate financial results. PeopleSoft's current business practices and corporate governance
policies clearly prohibit such transactions."

Editor's Note: Long before the accounting scandals broke at Enron Corp. and Worldcom, dot-com companies were already coming under fire for the way they stretched the truth about everything from the size of the markets they served to the amount of revenues they booked. During the dot-com's go-go days in the late 1990s online sites were swapping ad space on one content site for space on another, and then booking it as revenue.

The "swaps" of fiber-optic capacity--and improper accounting of such deals--to falsely boost a company's revenue during an industry slowdown (what Quest, Global Crossing and Worldcom did) and now pointed out in the press as "barter deals" is misleading, too.

Because the culprit is not barter--the versatile business tool--but the executives who chose to improperly account for these "swap" deals and then overstate their revenues. These fraudulent actions are not only bad business for the companies practicing it, as well as their shareholders, but it's also harmful to the commercial barter industry.

Everyone connected with the barter industry should understand the improper accounting differences, and be ready to defend and explain the correct use of barter. In short, we must provide the press and the business community with this simple message: When a company wants to barter and maintain a transparency, they should handle their barter transactions through the barter industry's third-party record keepers.

Should Service Fees Be Paid In Trade Or Cash?

Last week, in the Here & There section, we reported that Barter-bay.com is changing its service fee structure from cash to 100% trade.

The following is a response from Terry Brandfass of BXI Arizona...

OK...why don't all of us (running trade exchanges) take our fees in trade?...definitely a fair question that deserves a fair answer.

Having been in the barter business for approximately 25 years, I've seen MANY trade organizations come and go. When I first entered into the business, it was with Exchange Enterprises. They took their fees in trade. Birthed from them, was Barter Systems International. They also took their fees in trade.

I learned everything on how NOT to run a barter organization from Exchange Enterprises...one of them was that NO business can survive on barter alone.

Exchange Enterprises had a strong national retail exchange base. The numbers they did on a monthly average in those days was staggering...we were in Tucson, AZ with approximately 400 clients. We did between $1,500 to $2,000 per client per month...AND that was in 1978/79.

However, on the flip side...how did all of the cash bills get paid? You had to pay the sales people a commission on that cash membership that many times included a trade component. You had to pay your brokers a salary. You had utilities...phones...etc. AND then you had taxes...the giant killer that brought both Exchange Enterprises and Barter Systems tumbling down.

I also observed large amounts of inventory being purchased out of the system with corporate company credits for inventory they would then cash convert, and use to stay a float. This took precious inventory (always the good, hard product) out of the hands of the clients.

We saw the handwriting on the wall in time to get out. It was only a matter of months, when we were in an airport, watching the corporate heads of Exchange Enterprises being interviewed on Night Line and being torn to pieces. Shortly thereafter, only a matter of months, Barter Systems International also came tumbling down.

None of it was a pretty sight. Our whole industry took a big hit. We had to work very hard to pull the industry back up again. I credit most of the hard work to the group of dedicated people inside of IRTA. It was a rude awakening for many when trade secrets had to go, to be replaced with working relationships as the wave of the future.

Yes, our industry has a long way to go....but...we've come a long way baby, look at us now!

Terry Brandfass of BXI Arizona
bxiarizona@earthlink.net

Valuable Contacts For You. . .541 Barter Company Listings

Now available, listings of every barter company in the USA...manufacturers, wholesalers, retailers, travel & media companies move your products and services through these 541 barter companies. Listings include addresses plus phone, fax, e-mail and URL as available.

Regarding our comment last week on the danger's of charging 100% trade service fees, Reid Nunn of Barter-bay.com wrote:

"Your comments about the downfall of taking fees in trade are well noted. Not to counter what you say, because it is 100% valid, is the fact that it is very difficult to collect cash fees from many people far away. Those who will pay, will. Those who won't, it's not worth the cost of collections. But the real problem is that those who don't pay are no longer trading, and their trade dollars are not flowing.

"If a person (trade exchange owner) is dependent upon the cash flow from fees to live on, this (method of collection) should not be done. However, if they have other sources of income as I do, then it is a great way to EARN credits to use to trade within one's exchange. The more I earn in trade fees paid in trade, the more I have to spend in my cash businesses to increase my cash profit.

"Public reception has been tremendous, and Barter-bay.com is growing faster than ever, with more and more trading activity daily. Plus, I spend less time on it."

• Have you signed up to receive a summary via e-mail of the Tuesday Report every week? If not, go to the top of our Home Page (right hand corner) to sign up!
  
  
• The move to expense stock options has been urged by corporate reformers who say this will more accurately reflect the effect on shareholders than the current system, which has options in footnotes of annual reports.

  But Harvey Golub, the retired chairman and CEO of American Express, says its not necessary to expense options as the effect of options are now accurately reflected in a company's earnings per share (EPS) number. Golub says it reflects the value of options accurately and completely.

  He contends that the shares granted as options become an accounting cost to the shareholders--a cost created by a reduction in earnings per share. In essence, the cost of options is entirely borne by the company's shareholders, in that they are a transfer of wealth from the old shareholders to the new...and this transfer becomes larger as the stock price goes up.
  

• Germany's advertising market, the world's third largest behind the US and Japan, shows few signs of recovery. What's holding it back? A weak economy and uninspired consumer spending.

  Additionally, their ad market also suffers from the low regard in which many German companies hold advertising...business strengths historically have been perceived as technical rather than marketing-oriented.
  

• We have received two notices of coming Barter Holiday Shows: The Annual ITA Barter Expo & Holiday Gift Show is scheduled for October 12 at Harper College in Palatine, Illinois. (Vendors should contact Jack Schacht.)

  Jim Briner's BarterNet Holiday Show is scheduled for November 23 at the Crown Plaza Suites Hotel in Pleasanton, California.
  

• One of the most desired clients within a trade exchange is a restaurant. The September issue of The Competitive Edge shows why restaurateurs in your community need the services of a trade exchange.

  The article includes pie charts showing costs for full service as well as limited service restaurants. Powerful material for your sales efforts. So, check out the hottest marketing tool in the industry...click here!
  

This Issue's Glossary of Terms:

Currency Land:
Land for which there is no ready cash or credit. Currency land is used primarily for trading and is typically not suited for building purposes.

Debit Zero System:
An economic principle which requires that every trade dollar in the system (trade exchange) is 100% backed by the credit worthiness of all the members. It additionally uses collateral assets as a secondary back-up to ensure that a trade dollar has value or purchasing power.

A debit zero system provides the most stable barter currency, and is also referred to as a balanced system, i.e. for every positive balance there is an equal amount of negative balance.